I agree in prin­ci­ple with this idea, but in prac­tice not so much. At least, not exclu­sive­ly.

Slight Tangent

If I pur­chase I stock I pay a com­mis­sion once, even if I hold it for 10 years, while a low-fee index fund charges me that same low-fee every sin­gle year. So, the idea of low-fee being bet­ter for long term hold­ings is disin­gen­u­ous.

The counter argu­ment by the way is that an index fund reduces risk, and it’s a good argu­ment which is why I think a low-fee fund is a good way to start, but not the only thing investors should start doing.

Back to the Point

I don’t like this idea of “for­get about it” or “don’t look at your state­ments” as a way to man­age your invest­ing anx­i­ety.

A bet­ter way of man­ag­ing anx­i­ety is chang­ing your sto­ry by chang­ing your per­spec­tive AND then using your new per­spec­tive to devel­op a con­fi­dence about invest­ing that will serve you for decades. I think this con­fi­dence-build­ing and per­spec­tive-chang­ing are relat­ed. After all, if you don’t change your per­spec­tive and instead act like a pro­fes­sion­al trad­er, of course you’re not going to devel­op mas­tery (unless you are a pro­fes­sion­al trad­er and are good at what you do).

Let’s break this down into three ele­ments:

Motivation

Education

Mastery

As I was writ­ing, I thought of a metaphor along the lines of “teach a per­son to fish, rather than giv­ing them fish.”

Let’s say you go fish­ing. Within a few min­utes of get­ting out there, you hook a fish. And anoth­er. “Great!” you think. And, you’d be right. Great. But unre­al­is­tic.

At some point the fish won’t bite. At some point the sea will kick up. As some point, it might even rain. Fishing isn’t much fun… though as the say­ing goes, it’s still bet­ter than a day at work.

That’s your per­spec­tive. If you can learn to love the sway of the boat, or the feel­ing of sun on your face, then even if you go fish­ing but don’t catch any­thing, you’re going to keep fish­ing. But in the finance world equiv­a­lent, peo­ple will shout that learn­ing to love the sun or the fact that you have no phone sig­nal has noth­ing to do with being bet­ter at fish­ing.

Why don’t peo­ple invest? There are prob­a­bly a few rea­sons, but one is def­i­nite­ly that it goes against our nature to keep doing things that don’t earn a reward. And, with invest­ing there are times when the mar­ket is down.

How many months will you go, con­tin­u­ous­ly putting mon­ey in as each month you look and see you have less than the start of the month?

The Power of Habit is great for under­stand­ing the psy­chol­o­gy of moti­va­tion. Simply, it defines habit form­ing behav­ior as cue, habit, reward. The reward is crit­i­cal, and that’s why peo­ple can’t be moti­vat­ed to invest with­out dip­ping into their reser­voir of will when their invest­ments are going down. It takes ener­gy to work against this habit, ener­gy many of us don’t have.

Management tries to avoid div­i­dend cuts, and we can make them more rare by invest­ing in div­i­dend aris­to­crats. Looking at your total pay­check means that regard­less of “how the mar­ket is doing” with each invest­ment (and div­i­dend rein­vest­ment, and div­i­dend raise) your pay­check goes up.

Your ris­ing pay­check is the reward that rein­forces the habit.

With the pay­check you have exter­nal moti­va­tion to par­tic­i­pate in build­ing wealth, which means you might be curi­ous. Which means you can look. By look­ing, you will learn.

Learning more, espe­cial­ly when you’re young, will build a life­time habit of eval­u­at­ing your wealth and invest­ing habits through each life stage, ask­ing for help when nec­es­sary and feel­ing mas­tery around the top­ic because you’ve been look­ing, and you’ve learned.

So, with The Elephant in the Room has a Paycheck you have a pos­i­tive moti­va­tor (actu­al­ly more than one — because you can track the Raise as well, and the raise is sur­pris­ing­ly high — who doesn’t like rais­es?), learn as you go, and devel­op a mas­tery about finan­cial terms so that you set your­self up for long-term wealth accu­mu­la­tion through each life-stage.

Caveat 2: The Tactical How-To

Stockpile, among oth­er cool things, allows investors to get start­ed with just $5 (you can even get a $5 bonus for new accounts if you use this link). Investors can choose from any of over 1,000 stocks or ETFs. Getting start­ed is as sim­ple as fill­ing out an online form.

I want­ed to make sure that read­ers not only had a plan for invest­ing, but had a step-by-step guide to get start­ed. Which means I need­ed to sug­gest a method for buy­ing stocks.

Without Stockpile, I focused on an “old school” way of buy­ing stocks direct­ly from com­pa­nies. Buying stocks direct­ly still works, but (big but!) there is usu­al­ly a min­i­mum of $250 to get start­ed, there’s a lot more fric­tion as you often have to fill out a form and mail it in, and the web­sites are gen­er­al­ly poor qual­i­ty. Not to men­tion that for each com­pa­ny in which you wish to invest you’d have to go to their web­site, and fig­ure out what their “ver­sion” of the rules/fees are.

Here’s a quick sum­ma­ry:

Buy Shares with Stockpile:

Minimum invest­ment to get start­ed: $5

Minimum addi­tion­al invest­ment: $5

Friction: Low, com­plete­ly online set­up

Investment selec­tion: Simple, one site for over 1,000 invest­ment choic­es

Investment selec­tion: Complex, each com­pa­ny has their own direct pur­chase rules, and if you invest in mul­ti­ple com­pa­nies you could end up with mul­ti­ple web­sites to use to man­age your port­fo­lio

It goes with­out say­ing that if I were to rewrite Chapter Four, I’d rec­om­mend Stockpile rather than direct stock pur­chas­es.

And of course if you have a bro­ker­age you pre­fer to use, you’d want to make sure you can rein­vest div­i­dends (Robinhood, for exam­ple, does not). Additionally, tra­di­tion­al bro­ker­ages have high­er com­mis­sions that Stockpile (and Robinhood of course!) and you have to buy an exact num­ber of shares, instead of Stockpile’s approach allow­ing investors to pur­chase frac­tion­al shares. Meaning, if you’re just get­ting start­ed with a mod­est amount of mon­ey to invest, Stockpile is a bet­ter option than a tra­di­tion­al bro­ker­age. However, if you’ve already bought some shares you can sim­ply turn on “rein­vest div­i­dends” and begin your Elephant’s Paycheck Blueprint.

Free Email Course

If you’re not com­mit­ted enough to spend $20 on a book, even though it’s beau­ti­ful­ly print­ed, you can always sign up for my free email course which cov­ers a lot of the same mate­r­i­al (and does ref­er­ence Stockpile instead of Direct Purchase Plans).

Give it a try?

Money Making Money

I wrote a free email course specif­i­cal­ly for peo­ple who want to get start­ed invest­ing. In it, I will teach you how to get start­ed with as lit­tle as $10 using Stockpile, and then walk you through my unique met­rics designed for you to have fun and stay moti­vat­ed to build a healthy invest­ing habit.

Course atten­dees can down­load a spread­sheet tem­plate that I’ve cre­at­ed to high­light these met­rics. I even share a tuto­r­i­al that you can use to set­up your own track­er.

Success! Now check your email to con­firm your sub­scrip­tion.

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About David

David Bressler is a tech executive who began offering financial coaching after noticing how little people know about investing. Since then he has made it his mission to help as many people as he can learn how to build sustainable wealth and gain financial flexibility.

Bressler, who earned his MBA at New York University’s Stern School of Business, writes and speaks about how adopting a few simple habits can dramatically improve your financial future. He lives in New York City with his wife and two children. The Elephant in the Room has a Paycheck is his first book.